Jaitley moves gently with maiden budget

After presenting his maiden budget, Finance Minister Arun Jaitley’s body language and utterances were reminiscent of a student complaining about lack of time for preparing for examinations which resulted in low scores. Even Jaitley said (during his budget speech as well as during post-budget interactions) that in 45 days nothing much could have been done. But one should remember that, in 1991, then Finance Minister Manmohan Singh had even less time than Jaitley and still he was able to present a dream budget. Further, Jaitley was the opposition leader in the Rajya Sabha for the last 10 years during which he must have criticised as many budgets.

If his maiden budget is any indication, Arun Jaitley will go into history books as the most undistinguished Finance Minister India ever had during the last two decades. The phase of indecisiveness which was the hallmark of UPA II still persists and the NDA government doesn’t seem to have any problem in carrying forward this legacy.

Take the case of the retrospective amendment which the then Finance Minister, Pranab Mukherjee, introduced in 2012. Jaitley preferred to maintain status quo by saying that a committee would be appointed to look into the matter. But the fact is that the high-level Shome Committee has already suggested scrapping of the draconian amendment. Maybe, the FM wants to buy some time before taking any decision on the matter which may also rub the President the wrong way. By then if the International Arbitration set up for the purpose comes out with its award, Jaitley can simply take shelter under its judgment and make necessary changes in the Act.

But the damage caused by the confusion prevailing over the issue in terms of held-back investments by the foreigners is immense and prompt action would have been lauded. Even countries like Brazil and the whole of East European Block don’t have a right (in their constitution) to bring retrospective amendments in their law. Why should India make an exception?

The FM, who gave one of the longest budget speeches, could not find the time to talk about with great clarity how the General Anti Avoidance Rule (GAAR) would be implemented. The GAAR is to come into effect from FY15-16 and it is already legislated. If the intention of the government is not to implement, then a legislative amendment is required but the Finance Minister has remained silent on the subject. Lack of clarity on the issue has resulted in heavy selling in stock markets post-budget and continued volatility in the stock markets could throw the government’s divestment target off track.

The FM has touched upon the country’s infrastructure needs in greater detail which is laudable. In one such proposal he said that the regulatory requirement with respect to CRR and SLR would not be applicable in case of banks issuing long-term infrastructure bonds. This essentially means that banks now have a big incentive to expand lending to existing infrastructure companies. But the reality is that almost all infrastructure companies are already overleveraged and struggling to find ways and means to reduce their debt burden. Many of them, like Nagarjuna, HCC and GMR, are readying to approach the capital market to reduce their debt burden by raising money by diluting equity. In such a scenario, whether the FM’s new announcement will help the infrastructure companies is anybody’s guess.

The budget has many positives for the realty sector too and some tax concessions for homebuyers. Whether these giveaways will result in increased demand for the sector is too early to say. One of the reasons for slackness in demand is the high cost of houses and also the high prevailing interest rates for home loans. Unless these problems are tackled it may be difficult to attract homebuyers in large numbers in the near future.

And lastly, some of the budget provisions are expansionary in their impact and may result in inflation reversing its downward trend. The FM should have been careful while dealing with this problem, especially as the country is staring at one of the worst drought seasons.

To conclude, after watching Arun Jaitley deliver his budget speech for more than two hours, it is clear that the health of the Finance Minister is no better than that of the Indian economy. One only hopes that by the time the next budget is announced (which is barely eight months away) we have enough good things to write about both.

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